by: Antonio Michael, head of Enness Private Office

Competition for high-net worth mortgage customers is hotting up, with an increasing number of lenders entering the market with a more flexible lending approach. Antonio Michael, head of Enness Private Office, examines the impact on the private banks which once dominated this space.

At Enness Private Office, we work with high net worth individuals who have complex lending requirements. As such, the majority of them are most suitably placed with a private bank, due to their ability to tailor a loan to a specific client, rather than having very strict criteria to meet, as is the case on the high street.

A common requirement from a private bank in order for them to agree to lend to a client is that they invest a certain amount of assets with the bank—for example, listed stocks, cash, or pensions—for them to manage and invest elsewhere. This is known as assets under management (AUM), and it’s something that clients are often reluctant to agree to as they either already have someone managing these assets, or they prefer to manage them themselves.

However, we’re seeing a real trend among private banks who are reducing the amount of AUM required from clients, with some not asking for assets at all from day one, as long as they can see liquid assets (portfolio of stocks or shares with another bank) in the background. This means the bank will offer them the mortgage, knowing they have the wealth and business they prefer of a client, and the banker will have developed the relationship.

This change in approach is a positive move.

Typically, a private bank would require 50% of the loan amount as AUM, but we are now seeing some requiring as little as 20% of the loan amount. For example, Standard Chartered has been known to offer 75% loan to value (LTV), at 1.9% plus LIBOR, requiring only 20% of the loan as AUM, for selected deals. It is also becoming more common for them to simply take custody of the assets, rather than a discretionary portfolio. Other banks who are willing to relax their AUM requirements—depending on the client and their circumstances—include Brown Shipley, SG Kleinwort Hambros and UBS, so it is clear many are relaxing their criteria to attract quality clients.

Taking a longer term view of a potential relationship seems to be another motivation for this reduction in AUM requirements. Private banks, like Standard Chartered, are adapting to a market which is becoming busier with lenders, and making themselves a little more accessible to what they see as quality clients.

Keeping a quality client for the longer term is more of a priority, with the anticipation they will have multiple lending requirements in the future. Most high net worth clients have a portfolio of assets, across residential, commercial, buy to let and other luxury assets such as a classic car collection, and private banks want to establish the relationship early on, in the hope they will become their lender of choice on all future investments.

We’ve always worked primarily with private banks as they are, more often than not, the ideal choice for our clients with complex circumstances or income streams. Even though AUM is not a new thing, we do find clients can be apprehensive to invest further into a bank, so to see this relaxing slightly is positive. It will open them up to a wider network of high net worth investors, who feel more comfortable keeping hold of their assets.

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